What’s in Store in Ireland’s Finance Bill 2012?
The Finance Bill 2012 (the "Bill") has made provisions for new schemes with the intention of attracting multinational companies and key personnel to Ireland. The Bill was published on the 8 February 2012 and it is expected that some further amendments will be made as it passes through the Committee stages, before it is signed into law by 6 April 2012.
The Bill is focused on providing for those companies willing to invest in expanding markets and ‘research and development' activities, while also continuing Ireland's commitment to a low corporation tax rate of 12.5%. The Bill also updates Irish legislation so it is line with EU standards with regard to cross border mergers and foreign dividends. Taxand Ireland examines the Finance Bill highlighting key tax changes and benefits for companies considering investment in Ireland.The first note-worthy provision is the introduction of new Special Assignee Relief Programme ("SARP") for a three year period to attract key people to Ireland to help expand established multinational and indigenous companies. SARP will operate to exempt from income tax 30% of income between €75,000 and €500,000 for employees assigned to work in Ireland for a minimum of 12 months in Irish operations of companies situated in jurisdictions with which Ireland has a double tax treaty.
This relief will be available only to new assignees for a maximum of 5 years to qualifying employees but it does not apply to Pay Related Social Insurance ("PRSI") or the Universal Social Charge ("USC"). Employees can also recover the cost of a return trip to their home country for their family (2 adults and one child) as well as up to €5,000 per child in school fees from their employer tax-free.
Further details of the Foreign Earnings Deduction ("FED") proposed in the Budget were included in the Bill. It will be available to individuals who spend 60 days or more in a year aiding Irish market development in Brazil, Russia, India, China and South Africa (BRICS countries). The FED will be capped at a maximum of €35,000 per annum and will be available for the period 2012 to 2014 and will apply to all forms of employment income (except benefits-in-kind).
The Research and Development ("R&D") Tax Credit Reward Scheme to reward key R&D employees that was proposed in the Budget was also expanded upon in the Bill. The key R&D employee must meet certain criteria while the company must be profit-making.
A new section was added to legislation to ensure that, where a wholly-owned subsidiary company is dissolved without going into liquidation and that company transfers all its assets and liabilities (on or after 1 January 2012) to its parent, the parent will not be deemed to have made a disposal of the share capital of that subsidiary. This amendment brings Irish legislation in line with Article 7 of the Cross Border Mergers Directive.
The Bill also amended the tax treatment of dividends received by Irish resident companies on or after 1 January 2012 which are paid out of the trading profits of private companies resident in a territory which has ratified the OECD Convention on Mutual Assistance in Tax Matters will now be taxed at 12.5% as opposed to 25%.
The Bill extends the income tax exemption in respect of certain interest payments to payments of interest on Eurobonds, wholesale debt instruments and asset covered securities to a company which is resident in a non-treaty country where the company is controlled by persons resident in a treaty country or where the ultimate parent of the company is quoted on a stock exchange in a treaty country.
The Bill contains further tax amendments to ensure that Ireland will remain one of the leading domiciles of choice for UCITS funds by further facilitating cross border mergers and master feeder structures as provided under the UCITS IV Directive.
The changes proposed by Bill are to be welcomed for the most part. However it is hoped that the FED will be extended to include other countries in South America and the Middle East. The SARP will also be reviewed, and while there are criticisms of its overall effectiveness, it is important to note that the new scheme will increase the pool of international talent from which a company based in Ireland can choose from by removing many of the restrictions barring individuals from the relief.
Overall, the Finance Bill should improve the position of a multi-national company looking to invest in Ireland and the changes proposed should be taken into account when considering Ireland as a possible destination for investment.
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